Economic Policy, Investments, & Monetary Changes

International Investments
1. An example of direct foreign investment is given by:
a. The sale of U.S. government bonds to foreigners.
b. The sale of U.S. stocks (equities) to foreigners.
c. A multinational corporation such as Ford, builds production facilities in Mexico.
d. All of the above.
2. The foreign exchange market is the market where:
a. Exports and imports are consummated.
b. Gold is exchanged to bring about trade equality.
c. Currencies are bought and sold.
d. Domestic buyers reach agreements with international sellers.
3. A current account surplus implies that:
a. A country is a net exporter to the rest of the world.
b. The country is running a net capital account surplus.
c. The country's foreign direct investment is negative.
d. all of the above.
4. Current account deficits are offset by:
a. Capital account deficits.
b. Capital account surpluses.
c. Current account surpluses.
d. Balance of payments surpluses.
5. The purchase of a U.S. stock or bond by a foreign investor is:
a. A credit item in the current account.
b. A debit item in the current account.
c. A credit item in the capital account.
d. A debit item in the capital account.

International Variances
1. Flexible exchange rate systems occur when:
a. There are differences between the values of currencies.
b. U.S. consumers pay different prices for different countries' goods and services.
c. U.S. dollars flow to other countries.
d. Exchange rates are determined by the law of supply and demand.
2. If the demand curve for dollars shifts to the right:
a. The values of all currencies have depreciated.
b. The values of all currencies have appreciated.
c. The dollar has appreciated.
d. The dollar has depreciated.
3. If the supply curve for dollars shifts to the right relative to the British pound:
a. The value of the dollar has appreciated.
b. The value of the dollar has depreciated.
c. The cost of U.S. goods to the British has increased.
d. The cost of British goods to Americans has decreased.
4. With a system of flexible floating exchange rates, a United States trade deficit with Japan will lead to:
a. A decrease in the balance of gold held by the United States.
b. An increase in the balance of gold held by Japan.
c. An appreciation of the dollar in relation to the yen.
d. A depreciation of the dollar in relation to the yen.
5. When the dollar appreciates, it means that:
a. It takes more dollars to purchase foreign currencies.
b. It takes more dollars to purchase a fixed amount of gold.
c. It takes fewer dollars to purchase foreign currencies.
d. It takes fewer dollars to purchase a fixed amount of gold.
6. Which of the following is a likely consequence when the dollar declines in value against other currencies?
a. The U.S. current account trade deficit increases.
b. The U.S. current account trade deficit remains constant.
c. The U.S. current account trade deficit declines.
d. U.S. products become more expensive for foreigners.
7. If fewer dollars are needed to buy a German mark:
a. Americans will buy fewer German goods.
b. Americans will buy more German goods.
c. German goods become relatively more expensive to Americans.
d. Americans buy a smaller amount of German marks.
8. Other things equal, higher U.S. income would:
a. Reduce the supply of dollars, causing the dollar to depreciate.
b. Reduce the supply of dollars, causing the dollar to appreciate.
c. Increase the supply of dollars, causing the dollar to depreciate.
d. Increase the supply of dollars, causing the dollar to appreciate.
9. With a system of floating exchange rates, holding everything else constant, a Mexican trade deficit with the United States will result in:
a. An increase in Mexico's domestic money supply.
b. More expensive Mexican imports into the United States.
c. A reduction in Mexico's inflationary pressures.
d. An appreciation of the dollar in relation to the peso.
10. Consider the impact on Ford autos produced in the U.S. and exported to Mexico, when the Mexican peso depreciated in the mid-1990s. The most likely consequences for Ford is:
a. Ford will buy more parts used in auto production which are made in Mexico.
b. Ford will shut down any production facilities it has in Mexico.
c. Production costs for Ford will increase because of the peso depreciation.
d. The demand for Ford's in Mexico will increase.
11. Which of the following was a consequence to the Mexican economy of the mid-1990s peso collapse.
a. An increase in GDP growth.
b. A reduction in the current account deficit.
c. A decrease in import prices.
d. Expansionary monetary and fiscal policies to increase economic growth.
12. If Japanese banks sell their U.S. assets such as Treasury debt, which of the following is true:
a. Dollars will be converted to yen through the capital account, and holding everything else constant, the dollar will depreciate.
b. Dollars will be converted to yen through the current account, and holding everything else constant, the dollar will depreciate.
c. Dollars will be converted to yen through the capital account, and holding everything else constant, the dollar will appreciate.
d. Dollars will be converted to yen through the current account, and holding everything else constant, the dollar will appreciate.
13. When a country's real exchange rate appreciates:
a. Its nominal exchange must have also appreciated.
b. Foreign goods become more expensive in terms of domestic purchasing power.
c. It could result if the domestic exchange rate is pegged in terms of the foreign exchange rate and foreign inflation rates are relatively high compared to domestic inflation rates.
d. It could result if the domestic exchange rate is pegged in terms of the foreign exchange rate and domestic inflation rates are relatively high compared to foreign inflation rates.